Search
Eurekahedge - Other Products and Services
Fund Of Private Equity Fund Database Free Trial

Hedge Fund News

EH Report

Manager Interviews

‘Mizuho-Eurekahedge Index’ goes live

Asian Hedge Fund Awards

Industry Events Calendar

Fund Launches and Closures

Archive



Eurekahedge
Eurekahedge Hedge Fund Indices

Hedge Fund Monthly
 
The 130/30 Club: Experts Make the Case

Hung Tran, FINalternatives

October 2007
 

Institutional investors both here and abroad just can’t seem to get enough of 130/30 strategies, with firms including State Street Global Advisors, Société Générale Asset Management, Robeco Investment Management and New York Life Investment Management all launching versions in recent months, with more to come in the near future.

But why are these strategies gaining traction with long-only investors? Are they merely a fad or do they have significant staying power?

More Favourable Than Hedge Funds

Institutional investors and pension funds have shown significant interest in 130/30-type strategies because they give long-only investors the opportunity to get more returns per unit of risk, according to Arlene Rockefeller, managing director of global equities at State Street. “You get more returns per unit of risk because it allows you to take bigger small-cap positions, which in turn, allows you to take bigger small-cap positive positions,” she explains.

 

“It’s using the negative information that we’re unable to use in long-only strategies.”

Rockefeller also says investors like 130/30s because it is a way for them to get hedge fund-like exposure “without going all the way to a hedge fund” and paying higher hedge fund fees.

State Street, which many consider to be the leading player in the 130/30 space, launched its first 130/30 strategy focused on the Down Under equity market, the Australian Alpha Edge, in December 2004. The firm recently announced that its entire portfolio of a dozen 130/30 strategies reached the US$10 billion mark for total assets under management.

Precursor to Hedge Funds?

While some argue that 130/30 strategies are the first step for investors looking at the hedge fund space, Steve Landau, managing director for product development at NYLIM, doesn’t think so. He says most allocations to 130/30s stem from the termination of equities mandates.

“It is possible that institutional investors getting into 130/30s will be familiar and comfortable investing in hedge funds but that is not the goal. The perfect example is the fact that one of the early adopters of 130/30 is the California Public Employees’ Retirement System, which invested in hedge funds before they invested in 130/30s,” he says.

Clark McKinley, a spokesman for CalPERS, confirms Landau’s assertions. “For us, this strategy is another way to generate alpha for the fund,” he says. “While we don’t anticipate a major shift of our assets to this strategy, it offers us a proven option to further diversify our portfolio as we pursue investment returns that beat global equity benchmarks.”

The US$243 billion public pension fund recently allocated US$3.2 billion in total to the 130/30 strategies of Quantitative Management Associates, Analytic Investors and SSgA.

The US$8.9 billion Indiana State Teacher’s Retirement Fund, a newcomer to the 130/30 space, is also using 130/30 strategies as “a good diversifier and return enhancer,” according to Robert Newland, chief investment officer. The pension fund recently issued a request for proposal for 130/30 managers and plans to further invest in hedge funds later on this year.

“It’s a new strategy we’re trying out because our board wanted us to be more aggressive in our asset allocation and manager structure composition,” says Newland, adding that, “it’s difficult to find managers in this space with any history of it.” The fund is looking for shops with track records of at least five years.

As well, the fund is planning to make a hedge fund presentation to its board at the end of November. “We don’t have the resources to go out and select individual hedge fund managers so it would be through a multi-strategy fund of funds, but it’s not something that’s etched in stone,” says Newland. 

Only Time and Returns Will Tell

While it seems like there’s a new 130/30 launch every week, Landau says there’s currently only about US$50-75 billion in total assets allocated to the space. “What will determine whether or not it’s a fad will be the returns,” he says.

Donald Porter, an analyst at Dalton, Greiner, Hartman, Maher & Co, which is planning the launch of its own 130/30 strategy this October, echoes Landau’s sentiments. “While they could be a fad, I think they are here to stay, unless managers are unable to add alpha through these structures,” he says.

 

 

This article first appeared in Vol III Issue No 32 of FINalternatives.

 

If you have any comments about or contributions to make to this newsletter, please email advisor@eurekahedge.com

[Top]




 
Industry News
 
     
  The Eurekahedge Report - October 2014  
     
  Asset Flows Update for the Month of September 2014  
     
  Hedge Fund Performance Commentary for the Month of September 2014  
     
  2014 Key Trends in North American Hedge Funds  
     
  2014 Overview: Key Trends in Funds of Hedge Funds  
     
  The Billion Dollar Interview with Constellation Asset Management  
     
  CSRC New Regulations on Private Investment Funds  
     
  It's All There: Post-AIFMD Fundraising Options in Germany  
     
  Singapore: Opportunities for Islamic Finance  
     
  The New Deal: Hedge Fund Management Fees Are Subject to Social Security Taxes  
     
     
Eurekahedge Hedge Fund Manager Travel Plans

Copyright © 2014 Eurekahedge Pte Ltd.
Use of this site is subject to our terms and conditions of use.